Bankers want RBI to cut CRR, SLR

Amidst a liquidity squeeze and a higher than expected credit offtake, bankers on Tuesday requested the Reserve Bank to slash the mandatory cash balance that they park with the central bank -- Cash Reserve Ratio (CRR)-- and the Statutory Liquidity Ratio (SLR), besides keeping the key policy rates unchanged.

This call comes even as both the RBI, as well as, the government are fighting high inflation driven by a massive jump in vegetable prices since mid December with unseasonal rains affecting crops.

After the customary pre-policy meet with the central bank, Indian Banks Association Chief Executive R Ramakrishnan told newsmen that the bankers led by State Bank, ICICI Bank, HDFC Bank, Bank of Baroda and Union Bank of India, among others, demanded reduction in both the CRR and the SLR to tide over the tight liquidity situation as well as the poor deposit growth. This is primarily because the credit offtake is growing above the industry's, as well as, the RBI's own estimates.

None of the bankers chose to speak to the media after the meeting.

"We requested RBI to slash both the CRR as well as the SLR (amount of prudential reserves that banks keep in the form of government securities, bonds etc) even though we admit that inflation is a big concern. We see inflation at 7% by the end of the fiscal. However, this is 50 bps above RBI estimates for this fiscal," Ramakrishnan said.

At present the CRR stands at 6% while SLR is pegged at 24%.

In October, 2010 RBI temporarily brought down the SLR by 100 bps to ease the liquidity situation and on December 16, 2010, in its mid-quarter review fixed this at 24% as a permanent measure to ease the liquidity pressure in the system.

From October, 2010 onwards, banks have been borrowing over Rs 1 trillion from RBI everyday on an average. The central bank's key policy rates of repo and reverse repo stand at 6.25% and 5.25%, respectively.